Obamacare in New York: Some Good News

Politically, these are rocky days for Obamacare. A couple of weeks ago, the Administration announced that it was suspending for a year the employer mandate that will oblige businesses with fifty or more employees to offer health coverage or pay a fine. Instead of going into effect next January, as was originally planned, the mandate will apply beginning January 1, 2015. In seemingly trying to bury the news by putting it out just before the July 4th holiday, the Administration only made things worse. In Congress, gleeful Republicans seized upon their opponents’ discomfort, calling for the individual mandate to be postponed as well.

The Administration rejected that idea, and plans are going ahead to get the insurance exchanges at the heart of the health-care reform up and running within six months. It’s a monumental task, in part because many G.O.P.-led states have refused to coöperate, but progress is being made. Following recent announcements in other states, including California and Oregon, confirming that a wide range of insurers have applied to sell individual and family plans through the exchanges, officials in New York are presenting some details of how the new insurance market will work here.

According to a front-page story in the Times on Wednesday, one important piece of news is that the cost of individual plans, which from Staten Island to Buffalo have long been astronomical, will come down substantially on the new exchange. In Manhattan, for example, people who have been paying well over a thousand dollars a month for individual coverage will be presented with a choice of plans that start at less than five hundred dollars a month. Those who make a modest income will be eligible for generous federal subsidies that will bring the cost down much further—perhaps as low as a hundred or two hundred dollars a month.

New Yorkers purchasing family plans will also get a break. For example, Empire Blue Cross currently charges Manhattanites $4,755 a month for a standard family plan. (Yes, that’s close to sixty thousand dollars a year.) On the new exchange, the monthly rate for a comparable plan will be $1,573, a difference of $3,182. Over twelve months, that adds up to more than thirty-eight thousand dollars. Elsewhere in the state, where current rates are a bit (just a bit) cheaper, the savings will be less, but they will still be considerable. And these numbers don’t even account for the new federal subsidies, which reflect a political decision to extend private health-care coverage to millions of Americans who couldn’t otherwise afford it. (I’ve long thought that the subsidies are so large that they may eventually encounter political opposition, but that’s not the issue here.)

How is this possible? The savings outlined in the previous paragraph reflect a chronic failure in the private health-care industry which Obamacare will help to correct. As such, they provide a timely reminder of why radical reform was necessary in the first place.

The first task of any health-care system is to provide readily available coverage for the sick, especially those with chronic conditions, such as heart disease or cancer. As it operates at the moment, the U.S. system doesn’t meet this standard. In many states, particularly in the South, health insurers refuse to sell individual coverage to people with serious illnesses on the perfectly logical grounds that they are likely to need a lot of costly care and attention. In New York and other progressive states, the authorities require insurers to offer coverage to people with preëxisting conditions, but that has simply forced up the prices of individual plans to extortionate levels. As the cost of premiums rose, many young and healthy folks who didn’t have group plans chose to go without any coverage, at least until they got ill. That further biased the risk pool for individual plans toward sick people, and the insurers responded by raising the price of coverage even further, making it even more difficult to obtain for those who needed it most.

Economists refer to this problem as “adverse selection,” and the individual mandate was designed to address it. By obliging even healthy people to take out insurance, the government can change the nature of the risk pool, which should allow insurers to charge lower premiums. In New York, at least, the initial signs are encouraging. Today, the cost of individual insurance plans is so high that fewer than twenty thousand people buy them. Under the new system, state officials project, the number of people enrolled in individual plans will expand to more than six hundred thousand. In a state with a population of nearly twenty million, that isn’t an enormous number, but it is a significant one.

I’ve written before that it’s too early to say how Obamacare will shake out. New York is just one state. In other, less regulated, places, where insurers are currently able to offer cheap plans that provide very limited coverage, the cost of individual plans may well go up—but so will their quality. And expanding individual coverage is just part of a bigger picture. Without making the employer mandate work effectively, containing the cost of small-business plans and persuading more G.O.P.-run states to expand Medicaid, the whole thing won’t hang together. Even if Obamacare does get up and running nationwide, there will still be questions about its cost, and about whether it wouldn’t have been cheaper and more effective to cut out the private insurers and adopt the public option.

But don’t let anyone tell you that the current health-care system is working well, or anything close to it. In Manhattan, where the median household income is about sixty-seven thousand dollars, it costs some families upward of fifty thousand dollars a year to purchase health coverage. That’s nuts, and it’s about to change for the better.